George Osborne's deficit reduction agenda has taken a hit as government borrowing rose £1.3 billion in July due to higher spending, leaving the country in its first public sector deficit in July since 2010.
The news is especially underwhelming since July normally sees a rosier financial picture with a surplus reported due to an influx of tax payments.
Public sector net borrowing for July, excluding distortions from bailing out the banks, was £62 million. This marked a £885 increase after a £823 surplus last year.
At the end of July the country's national debt, excluding the bank bailouts, stood at £1,193.4bn, equivalent to 74.5% of gross domestic product (GDP). When the Chancellor delivered his first, 'emergency' budget in June 2010, he said he predicted public sector debt would peak at 70.3% of GDP this year.
Ross Walker, UK economist at RBS, said the figures were "slightly disappointing".
"We had expected a small surplus. This is a key month for tax receipts from onshore and offshore corporations, so at face value a little disappointing," he added.
Rob Wood, from Berenberg bank, said: "It is not good news that it's the first July deficit for three years, a bit below consensus, so not great figures on the month."
Revenue growth was boosted by a 5.8% increase in income tax form a year earlier. However, corporation tax payments declined 0.9%.
A Treasury spokesperson said: "Strong tax receipts in July confirm that the economy is moving from rescue to recovery. There is still a long way to go as the UK recovers from the biggest economic crisis in living memory, and the Government is sticking to the economic plan that has already cut the deficit by a third and enabled the private sector to create over 1.3 million new jobs."